Rural Funds Group · ASX:RFF
Rural Funds — FY2014 Earnings Presentation
41 slides from Rural Funds's earnings presentation, Aug 29, 2014
Slide 1: Financial results presentation year ended 30 June 2014
Rural Funds Group (ASX: RFF) Financial results presentation year ended 30 June 2014 29 August 2014
Slide 2: Disclaimer
Disclaimer This presentation has been prepared by Rural Funds Management Limited (ACN 077 492 838, AFSL 226 701) (“RFM”) as the responsible entity of Rural Funds Group (ARSN 112 951 578) (“RFF”). The information contained in this presentation is not investment or financial product advice and is not
Slide 3: Agenda
Agenda RFM attendees 1. Highlights and results summary David Bryant Managing Director 2. Forecasts 3. Strategy Stuart Waight Chief Operating 4. Appendices Officer Melanie Doyle Chief Financial Officer James Powell Investor Relations & Distribution Manager 3
Slide 4: Highlights and results summary
Highlights and results summary
Slide 5: Highlights 2014
Highlights 2014 Merger then ASX listing Achievements Trading price of units up 23% Flow through tax status 5
Slide 6: Highlights 2014
Highlights 2014 Merger then ASX listing Achievements Trading price of units up 23% Flow through tax status Net profit after income tax $20,126,000 Net result in line with previous forecasts Financial Property values increased by $2.2m NAV increased from $1.01 to $1.17 5
Slide 7: Highlights 2014
Highlights 2014 Merger then ASX listing Achievements Trading price of units up 23% Flow through tax status Net profit after income tax $20,126,000 Net result in line with previous forecasts Financial Property values increased by $2.2m NAV increased from $1.01 to $1.17 Capital New ban
Slide 8: Highlights 2014
Highlights 2014 Merger then ASX listing Achievements Trading price of units up 23% Flow through tax status Net profit after income tax $20,126,000 Net result in line with previous forecasts Financial Property values increased by $2.2m NAV increased from $1.01 to $1.17 Capital New ban
Slide 9: Results summary
Results summary Metrics as at 30 June 2014 Net result in line with forecast Income previously provided Net profit after income tax 20,126,000 Income tax benefit1 16,724,000 AFFO $7m Net profit before income tax 3,402,000 Transformational period: – 195 days RFF Adjusted funds from operations (A
Slide 10: RFF market price performance
RFF market price performance Comparison of RFF to S&P/ASX 300 A-REIT index1 RFF market price movement from 14 February (listing date) to 30 June 2014 $1.00 $0.95 $0.90 22.7% increase $0.85 $0.80 $0.75 $0.70 RFF S&P/ASX 300 A-REIT Index Note: 1 RFF is not part of the S&P/ASX 300 A-REIT index Sources:
Slide 11: 2014 financial year results
2014 financial year results Summarised income statement FY14 was a transformational period 12 mths ended 12 mths ended FY13 RiverBank 30 June 2014 30 June 2013 Results include merger related Property revenue 15,764,000 7,980,000 expenses of $3.9m pre tax Almond harvest revenue 1,211,000 272,00
Slide 12: 2014 funds from operations
2014 funds from operations Composition of AFFO Adjusted FFO calculation excludes 12 mths ended 12 mths ended merger costs to represent FFO from 30 June 14 30 June 13 RFF’s property rental business Includes the results of the Property revenue 15,764,000 7,980,000 restructured business from merger
Slide 13: Property revaluations
Property revaluations Revaluation of property by segment Independent Water Total Prior independent Change Property valuation 2014 rights 2014 valuation 2014 valuation1 (%) ($m) ($m) ($m) ($m) Almond and cropping property 70.6 22.0 92.6 90.0 2% Poultry property and infrastructure 96.0 1.1 97.1 99.3 (
Slide 14: NAV reconciliation – 6 mths to 30 June 14
NAV reconciliation – 6 mths to 30 June 14 Writeback of deferred income Distributions to Balance at Retained Asset revaluation tax liabilites net of deferred unitholders Balance 31 December 2013 earnings reserve tax assets and losses (including issued units) at 30 June 2014 $145 ($3.8m) Closing NAV p
Slide 15: Bank debt facility
Bank debt facility Debt metrics as at 30 June 2014 $2 million per annum amortisation commencing 30 September 2016 Term debt facility limit $97.5m Key financial covenants: Term debt drawn $94.3m – LVR <50% Headroom $3.2m – Interest Cover Ratio >2.25x Loan to Value Ratio (LVR)1 42.8% – Permitted d
Slide 16: Acquisition: Tocabil – Hillston, NSW
Acquisition Tocabil – Hillston, NSW Contract for acquisition exchanged on 25 August 2014 for $5.2 million for the acquisition of a property, Tocabil, located near Hillston with land and water rights suitable for almond development Yilgah Tocabil Tocabil Yilgah Acquisition will initially be 100%
Slide 17: Forecasts
Forecasts
Slide 18: FY15 forecast financial results
FY15 forecast financial results Forecast adjusted funds from operations Forecast Actual 12 mths ended 12 mths ended 30 June 15 30 June 14 Property revenue 21,739,000 15,764,000 Direct property costs (764,000) (248,000) Net property income 20,975,000 15,516,000 Other income 734,000 347,000 Almond inc
Slide 19: FY15 forecast financial results
FY15 forecast financial results Forecast total comprehensive income attributable to unitholders Forecast Actual 12 mths ended 12 mths ended 30 June 15 30 June 14 Adjusted funds from operations 10,791,000 7,027,000 Revaluation of properties 1,009,000 5,200,000 Revaluation of derivatives (12,000) (920
Slide 20: Comparison of metrics to previous FY15 forecast
Comparison of metrics to previous FY15 forecast1 Disclosure date Disclosure date Highlights 12 Feb 14 29 Aug 14 Units on issue (‘000) 119,527 117,796 • Increase in forecast distributions per unit from Comprehensive income cents 7.6 9.1 8.4 cents to 8.6 cents per unit • Forecast NAV up 18% on previou
Slide 21: Strategy
Strategy
Slide 22: Comparison
Comparison Gearing Premium/discount to NAV 48% 50% 41% 43% 39% Average 37% 33% 33% 33% 30% 31% 23% 14% 10% Average 7% 1% 2% RFF FST TOF TIX ANI FET GOZ GHC LEP -9% -8% FST FET TOF ANI GHC RFF GOZ TIX LEP -22% Weighted average lease expiry (WALE) FY15 forecast distribution yield 14.3 12.7 9.3% 8.6% 8
Slide 23: The challenge
The challenge Premium/discount to NAV 50% 23% 14% Average 7% 10% 1% 2% RFF FST TOF TIX ANI FET GOZ GHC LEP -9% -8% -22% 20
Slide 24: Two observations
Two observations After more than 40 meetings with institutional investors, both current and prospective, we can report: 1. Existing investors desire a higher market price 2. Potential investors require greater liquidity 21
Slide 25: Increase the size of the fund
Two observations have a common solution Increase the size of the fund (Without diluting FFO) 22
Slide 26: Is bigger better? Discount/premium to NAV
Is bigger better? Comparison of REITs 100% 80% 60% 40% Discount/premium to NAV 20% 0% -20% RFF -40% -60% -80% -100% 10 100 1,000 10,000 Market capitalisation ($m) Source: Morningstar, accessed 22/8/2014. NAV based on last company releases 23
Slide 27: Is bigger better? Annual turnover
Is bigger better? Comparison of REITs 200% 180% 160% Annual turnover (% units on issue) 140% 120% 100% 80% 60% RFF 40% 20% 0% 10 100 1,000 10,000 Market capitalisation ($m) Note: • Turnover defined as volume traded in 2014 calendar year divided by units on issue and annualised Source: Morningstar, a
Slide 28: The risks of expansion and benefits of scale
The risks of expansion and benefits of scale The risks of expansion: The benefits of scale: 1. Dilution of FFO 1. A higher price relative to NAV 2. Decrease in asset quality 2. Greater liquidity 3. Decrease in tenant quality 3. Greater diversification 4. Increased leverage 4. Economies of scale
Slide 29: Our objectives
Our objectives Our objectives are long term: 1. Increase net assets 2. Without diluting FFO 3. Increase distributions 4. Reduce leverage 5. Maintain asset quality while diversifying 6. Maintain tenant quality while diversifying 7. Lower operating costs per unit “Great works are achieved not by stren
Slide 30: Appendices
Appendices
Slide 31: Reconciliation of net profit after tax to adjusted FFO
2014 financial year results Reconciliation of net profit after tax to adjusted FFO The most significant transaction for 12 mths ended 12 mths ended the Group during the year was the 30 June 2014 30 June 2013 merger and listing, costs associated with this were $3.9m Net profit after tax 20,126,000
Slide 32: Summarised balance sheet
2014 financial year results Summarised balance sheet Merger increased assets by 154% As at As at NAV at 30 June 2014 $137.5m 30 June 2014 30 June 2013 NAV per unit $1.17 Cash 2,723,000 182,000 Properties revalued up by 1.3% at 30 Property investments 227,203,000 89,332,000 June 2014 Inventor
Slide 33: Property investment reconciliation
2014 financial year results Property investment reconciliation Investment Biological Intangible Property, plant Total property assets assets and equipment Balance as at 30 June 2013 - 35,394,000 24,418,000 29,520,000 89,332,000 Transfer from property, plant and equipment 27,954,000 - - (27,954,000)
Slide 34: Sensitivity analysis
Sensitivity analysis Sensitivity analysis of disclosure date 29 Aug 14 FY15 forecast Change in total % change in total Change in % change in comprehensive comprehensive funds from funds from Item Assumption Change income income operations operations 5% increase in expenses ($162,066) (1.5%) ($162,06
Slide 35: Diversified assets and counterparts
Diversified assets and counterparts Portfolio diversification by asset values RFF portfolio highlights include: 3% 4% Poultry infrastructure • 27 properties 16% • 100% occupancy Almond orchards 40% • 13 year WALE (as at 30 June 2014) Vineyards • diversification by geographic region, commodity and co
Slide 36: Key assets further details
Key assets further details Poultry infrastructure Almond orchards Vineyards 13 poultry farms consisting of 134 sheds located Two almond orchards located near Hillston NSW Seven vineyards with 666 ha planted to vines in Griffith, NSW and 20 sheds on 4 farms in of which 1,221 ha leased to SHV, 551 ha
Slide 37: RFF investment thesis
RFF investment thesis Australian property sectors Observations: 160 – Academic research demonstrates that leasing assets provides capital management benefits and 140 flexibility to lessees and is linked to higher company returns 120 – The combined value of Australian commercial real 100 estate is
Slide 38: External investment opportunities
External investment opportunities RFF has identified a range of investment opportunities RFF will pursue acquisitions of additional assets to grow the quantum and diversity of its earnings The investment strategy is to invest across the full range of the asset continuum shown below, with the obj
Slide 39: Responsible entity relationship
Responsible entity relationship RFM is one of the oldest and most experienced agricultural funds management organisations in Australia Rural Funds Management Limited (RFM) is an experienced fund and asset manager that specialises in Australian agriculture Established in 1997, RFM has historicall
Slide 40: RFM board and management team
RFM board and management team RFF is externally managed and governed by a highly experienced management team and board Board of directors Contact • Joined RFM in 2003 • Responsible for reviewing and optimising the • Former director of broking firm JBWere with more than performance of the RFM funds,
Slide 41: Corporate information
Corporate information Rural Funds Management Pty Ltd ACN 077 492 838 AFSL 226701 Canberra Office Level 2 2 King Street Canberra ACT 2600 Telephone: +61 2 6203 9700 Facsimile: +61 2 6281 5077 Website: www.ruralfunds.com.au For further information: For media enquiries: Investor relations enquiries: Da